1. What is eBay’s business model and business strategy? How successful has it been?
According to the course textbook there is several internet business models found on page 444. The internet business model that best describes eBay is an “online marketplace”. As it says in the case itself, “eBay is an online auction service…who stores no inventory and ships no products. Instead, it derives its revenue from the movement of information”. This is essentially what an online marketplace does. It provides a digital environment where buyers and sellers can meet. From there, they can exchange products. This is done by displaying and searching for products and then setting the prices at which the transaction will occur.
EBay’s business strategy is to generate revenue from the fees and commissions charged to the customers who use the site to exchange products. The commission scale is somewhat complicated, but seems to be successful. The revenue is generated by the people who use the site. However, the interesting part of this business strategy is that none of these people actually work for the company.
EBay is very successful. According to the case, the company has been profitable and had attracted more than 200 million users by 2006. It has operations in 32 countries. In 2005, eBay users listed 1.8 billion items in auctions. This caused about $46 billion dollars exchanging hands. One of the most successful parts of the company is that it is fully automated. This significantly reduces costs to eBay, keeping net income high.
2. What are the problems that eBay is currently facing?
One problem is that analysts report that many of eBay’s top sellers aren’t interested in adding voice calls to their sales models. They can barely keep up with the e-mail they receive on eBay and may like the simplicity and above all the anonymity of the current system.
Another problem is that since eBay is growing internationally, it may not be able to keep up with all the different laws found in each country. Liability seems to be the common issue among many different countries.
Of course, there is a problem that eBay has always had to face. This is the problem of auction’s honesty and integrity. The difficulty here is that eBay has some control over this issue but not complete control. Some buyers claim to have been defrauded by online sellers. Another problem is the fear that some sellers collect inflated fees; especially on collectible or antique items. EBay users have also been subjected to identity theft scams and have caused many fraudulent sales.
Since eBay facilitates these transactions, it has a responsibility to ensure that the online trade environment is secure for its customers.
Customer service is another problem for eBay and it is primarily due to the size of the company. EBay experiences essentially two types of customers, sellers and buyers. Often the need of one customer is not the same as the need of the other. Unfortunately, eBay encourages customers to deal with the problem on their own and not involve eBay in the process of recovering goods or receiving proper payment. On the other hand, if eBay were to increase the responsiveness of customer service, costs are surely to increase as well. If costs increase, so will the commission fees that are charged by eBay in an attempt to sustain the net income currently experienced. However, if costs are increased and commission fees are kept the same (as customers would like to see happen), net income decreases and this makes investors weary about the company’s success and the investment.
3. How is eBay trying to solve these problems? Are these good solutions? Are there any other solutions that eBay should consider?
EBay has done a lot to try and solve these problems. One solution includes great expansion. Growth rates have been hindered by the increase in seller fees, however, these loses have been covered by the...